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Mahomed Akbar Abdulla Fazalbhoy Vs. Associated Banking Corporation India Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberAppeal No. 59 of 1949
Judge
Reported inAIR1950Bom386; (1950)52BOMLR559; [1950]20CompCas325(Bom)
ActsIndian Companies Act - Sections 159 and 187
AppellantMahomed Akbar Abdulla Fazalbhoy
RespondentAssociated Banking Corporation India Ltd.
Excerpt:
.....on call made by company--enforcement by liquidator of liability of contributory--whether suit for debt competent--whether liquidator can demand payment of call money--statutory liability of contributory to pay calls--procedure to enforce such liability --nature of liability of contributory--power of court to order payment of debts by contributory--power of court to make calls--indian limitation act (ix of 1908), arts. 112 120.;the liquidator of a company filed a suit to recover as debt money payable by a contributory as call made by the company prior to its liquidation in respect of shares held by him. the suit as framed having been barred by limitation, the liquidator amended the cause of action in his plaint by alleging that on the winding up order being made the liability of..........an order against the defendant for the payment of the amount of the unpaid calls he has filed this suit in respect of that claim. the difficulty in the way of accepting this argument is that it is now well settled, as i shall presently point out, that an order under section 186 can only be made in respect of contractual debts due by the contributory to the company. section 186 has no reference whatever to the statutory liability created by section 156. it is only those debts which a liquidator can realise by means of a suit that can be ordered to be paid by the court under section 186. as i said before, the liquidator, instead of having to institute a suit against a contributory, is allowed to come to court and obtain a pay order under section 186. therefore, if the plaintiff's claim is.....
Judgment:

Chagla, C.J.

1. This is an appeal from a judgment of Mr. Justice Tendolkar by which he decreed the claim of the plaintiff company, which is in liquidation, in respect of certain calls made by the directors of the company against the defendant who was a shareholder. A few facts must be stated in order to appreciate the various points that have been urged at the bar. The defendant, who is the appellant before us, was the holder of 876 ordinary shares of the company. On 24th July, 1945, the directors of the plaintiff company made a call of Rs. 25 on the shares, and the calls were payable by two instalments. The first was payable on 5th September, 1945, and the second was payable on 2nd December, 1945. On 6th August, 1945, the company gave notice to the defendant to pay the first instalment, and on 6th November, 1945, the company gave notice to pay the second instalment. The defendant failed to pay both the instalments in respect of 375 shares. A provisional liquidator of the company was appointed on 11th April, 1947, and a winding up order was made by the Court on 1st October, 1947. On 9th July, 1948, the liquidator made a demand upon the defendant to pay up the amount of the unpaid call. On 9th August, 1948, the defendant took out a chamber summons for rectification of the list of contributories alleging that he was not a contributory in respect of those 375 shares. That summons was dismissed on 17th September, 1948. The defendant appealed, and the appeal was dismissed.

2. This suit for recovering the amount of the unpaid calls was instituted on 10th December, 1948. As it was originally instituted, it was a simple suit for recovering the debt due by the defendant to the company in respect of the unpaid calls. It was realised that as the suit stood it was liable to be dismissed by reason of the statute of limitation, and thereupon an amendment was applied for, and the application was granted, whereby the plaint was amended and paragraph 9A of the plaint sets out the amended cause of action on which the plaintiff makes claim against the defendants and that amended caused of action is that on the winding up order being made the liability of the defendant to pay the amount of the calls became a statutory liability, and such statutory liability was not barred by the law of limitation. No call has been made by the Court on any of the contributories under Section 187 of the Indian Companies Act, and therefore an attempt was made to contend that this is a call made by the liquidator himself. In the first place, it is extremely doubtful looking to the language of the notice sent by him dated the 9th July, 1948, that it is at all a call made by the liquidator in liquidation proceedings. The notice sets out the fact that Rs. 12-8-0 is due in respect of the first instalment and Rs. 12-8-0 is due in respect of the second and tells the defendant what is the total amount due and payable by him in respect of the 375 shares, and then the liquidator goes on to 'call upon the defendant' to pay that amount. It would be stretching the language used by the liquidator unduly to hold that this very simple notice of demand is a call as contemplated by the Act.

3. But this contention raises a much more serious and important question which we must deal with, and that question is whether the liquidator has any right to make a call upon the contributories. Now, for this purpose reliance is placed upon Section 159 of the Indian Companies Act. That section provides that the liability of a contributory shall create a debt payable at the time specified in the calls made on him by the liquidator. Now, it will be immediately noticed that all that Section 159 does is to specify the nature of the liability of the contributory, the extent of which is laid down in Section 156, with which I shall deal later, and further Section 159 lays down the point of time at which the liability of the contributory is crystallised. The nature of the liability is that it is a debt, and the point of time is the time which is specified in the calls. It is true that the section says, 'calls made by the liquidator,' but this section itself does not confer any power upon the liquidator to make a call and therefore we must look at the other sections of the Act in order to determine whether the legislature has conferred any powers upon the liquidator to make a call. Section 187 deals with the power of the Court to make calls, and that power can be exercised either before or after the Court has ascertained the sufficiency of the assets of the company. That power can be exercised against all or any of the contributories. The call has got to be made for the payment of any money which the Court considers necessary to satisfy the debts and liabilities of the company and the costs, charges and expenses of the winding up and for the adjustment of the rights of contributories among themselves. Section 212 deals with the powers and duties of a liquidator in a voluntary winding up, and one of the powers that he can exercise is the power of the Court of making calls, but that can only be done with the sanction of the Court. Then we have Section 246, which confers upon the Court powers to make rules, and under sub-section (2) the High Court may be rules confer upon the official liquidator the right to exercise the powers and the duties of the Court, and one of these powers and duties is that of making calls, but even this power to make calls, which might be delegated to the liquidator, has got to be subject to the control of the Court. Now, when we turn to the rules made by this Court under Section 246, we find that no rule has been made conferring any power upon the liquidator to make calls, and therefore as the position stands, a call can only be made by the Court and not by the liquidator. Therefore, even assuming that we read the notice sent by the liquidator on 9th July, 1948, as a call, even so, we must hold that the liquidator had no power or authority to make a call and therefore there would be no liability upon the defendant to pay any such call made by the liquidator. It would be perhaps interesting to note that the provisions of the English law are very similar. Section 273 of the English Companies Act (1948) corresponds roughly to our Section 246, but the difference between our law and the English law is that whereas this Court has framed no rule conferring the power of making calls upon the liquidator, the English Court has by rule 86 and subsequent rules conferred that power.

4. The next contention that is urged is that the plaintiff is realising a debt which is not a contractual debt but which has become a statutory debt and which he is entitled to recover and realise independently of Section 159. It is perfectly true that on a winding up order being made the liability of a contributory to contribute to the assets of the company to the extent set out in Section 156 becomes an absolute liability which arises by reason of statute and not by reason of contract. Therefore, it is perfectly correct to say that the liability to pay calls which was a contractual debt as between the shareholders and the company become a statutory liability to contribute to the assets of the company when the winding up order was made. But it must be noted that that liability was not confined to the amount of the calls made and which were not paid. That liability extended in the case of the defendant, who is a shareholder of a company limited by shares, to the unpaid amount of the shares, but the question that we have to consider is whether this liability of the defendant can be recovered in any other manner except by the procedure laid down in Section 187. Mr. Seervai says that if there is a statutory liability under Section 156, there is no reason why the liquidator must approach the Court to make a call under Section 187. He is entitled to file a suit to recover the debt just as he is entitled to recover any other debt due to the company. Now, a clear distinction must be made between debts due to the company which are contractual debts and debts due to the company which are statutory debts by reason of Section 156 of the Indian Companies Act. A liquidator is under no obligation to follow any particular procedure or to obtain the sanction of the Court in order to realise a contractual debt. Therefore, to the extent that the liquidator filed the suit originally in order to recover the contractual debt due by the suit originally in order to recover the contractual debt due by the defendant in respect of unpaid calls, he was perfectly within his rights, but if the liquidator wants to recover a debt which is a statutory debt created by reason of Section 156, then, in my opinion, he cannot recover it by any other method except by the mode laid down in Section 187, and the reason for this distinction will be apparent. Contractual debts constitute the assets of the company, and the assets of the company have got to be realised by the liquidator on the company being wound up. The statutory liability of a contributory under Section 156 is entirely a different matter. It is not to be realised in the ordinary course, but it is only to be realised after the Court has applied its mind to various considerations laid down in Section 187. It is only when the Court is satisfied that a contributory should be called upon to discharge his statutory liability that the Court may make a call and ask him to pay the liability.

5. It is then suggested that the Court has the power to direct any contributory to pay any money due from him to the company under Section 186 of the Indian Companies Act, and it is contended that Section 186 furnishes a summary procedure to the liquidator to realise debts due by the contributory to the company, and instead of availing himself of the summary procedure it is open to the liquidator to file a suit to enforce a debt and, therefore, it is argued that what the liquidator has done in this case is that instead of going to the Court under Section 186 and obtaining an order against the defendant for the payment of the amount of the unpaid calls he has filed this suit in respect of that claim. The difficulty in the way of accepting this argument is that it is now well settled, as I shall presently point out, that an order under Section 186 can only be made in respect of contractual debts due by the contributory to the company. Section 186 has no reference whatever to the statutory liability created by Section 156. It is only those debts which a liquidator can realise by means of a suit that can be ordered to be paid by the Court under Section 186. As I said before, the liquidator, instead of having to institute a suit against a contributory, is allowed to come to Court and obtain a pay order under Section 186. Therefore, if the plaintiff's claim is barred by limitation in respect of a contractual debt due by the defendant he cannot obtain an order under Section 186. The Privy Council laid this down in Hansraj Gupta v. Official Liquidators, Dehra Dun Mussourie Tramway Co. Ltd. The relevant head-note correctly represents the decision of their Lordships, and the head-note says that Section 186 of the Indian Companies Act does not create new liabilities or confer new rights on the liquidator, but merely provides summary proceedings in the winding-up by the Court against debtor-contributories for enforcing existing liabilities and the power of the Court, under the section, to order payment is discretionary. In summary proceedings so instituted, every objection is just as open to the person sought to be charged as it would have been if a suit had been brought by the liquidator in the company's name for the same money.

6. Mr. Seervai has tried to distinguish this case by stating that these observations only apply when the debt due by the contributory is other than a debt in respect of a call. Mr. Seervai's contention is that the debt in respect of a call stands on a different footing because such a debt becomes a statutory debt under Section 156. That contention is obviously erroneous because Jagannath Prasad v. The U.P. Flour and Oil Mills Co. Ltd. was cited before their Lordships and their Lordships apparently approved of that decision and pointed out that that case had no relation to Section 186 and went on to say that it was a case relating to money due on the shares in the company which was in liquidation. The liability for which on a winding up became a statutory liability under Section 156 of the Indian Companies Act, 1913.

7. Turning to that case, it is clear on the facts of that case, that the contributory was called upon to pay the unpaid call be means of a call made by the Court under Section 187, and in the judgment the Court is at pains to point out, referring to Section 151 which corresponds to the present Section 187, what powers that section gives, and at page 350 this is what is stated in the judgment : 'It is a statutory right of the creditors of a company to enforce against the contributories of an insolvent company through the Court the obligation which the shareholders took upon themselves when they originally subscribed in the event of insolvency subsequently overtaking the company.'

8. It is then contended by Mr. Seervai that although a suit for recovery of a call made by a company may be governed by Article 112 of the Indian Limitation Act, 1908, once the winding-up supervenes a suit to enforce that liability is not governed by Article 112 but Article 120. Article 112 describes the suit in the first column as a suit for a call by a company registered under any statute or Act. The second column lays down the period of limitation as three years, and the time from which the period of limitation begins to run is stated in the third column as 'when the call is made.'

9. It is a well established principle of the law of limitation that once limitation begins to run no subsequent event will prevent the time from running and no authority has been cited, and there is nothing in principle to substantiate the proposition put forward by Mr. Seervai that although limitation began to run under Article 112 from the date when the call was made payable the subsequent order of winding up the company stopped limitation continuing to run and a new period of limitation has to be calculated from the date of the order of winding up. It is suggested that although till the winding up the debt was a contractual debt to which Article 112 would apply, since the order of winding up was made the debt changed its character and became a statutory debt and to such debt Article 120 would apply. Now, apart from authorities to which I shall presently refer, in my opinion, this contention is entirely untenable. It was open to the liquidator, as I pointed out before, to recover from the defendant the contractual debt in respect of the unpaid call, and if he filed the suit within the period of limitation, he could undoubtedly have obtained a decree against the defendant. But he has filed the suit more than three years after the calls became payable. It was open to the liquidator to have realised this debt as a statutory debt under Section 156, but as I pointed out before, the only method by which he could have recovered the statutory debt was by going to the Court under Section 187 and asking the Court to make a call. He has not chosen to do so and therefore as the suit stands it is a suit to recover a contractual debt which has become time-barred. It is perfectly true that as far as the statutory liability of the contributory is concerned, the article of limitation to apply would not be Article 112 but Article 120, but the difficulty in the way of Mr. Seervai is that the liquidator has not adopted the proper procedure in order to realise the statutory liability of the contributory.

10. Strong reliance is placed on a judgment of this Court reported in the case of Parell Spinning and Weaving Co. Ltd. v. Maneck Haji. It is a judgment of Mr. Justice Jardine. There the suit was brought by the official liquidator to recover calls from the defendant due before the winding up order was passed. At the date the suit was filed the calls were time-barred, and the learned Judge held that Article 112 did not apply to the suit but Article 120, and the learned Judge in his judgment at page 486 observed as follows : 'The result of the decisions and dicta seems to be, that, although the liquidator is substituted for, and enforces the rights of, the creditors in right of the company, yet that the winding-up order calls into existence new rights and new liabilities which did not exist before; and that equities which might have been set up against the company cannot prevail against the liquidator as representing the creditors.'

11. Now, with great respect to the learned Judge, the only rights and the only liabilities which arise on a winding up are those which are creatures of the statute and which are created by Section 156, and in order to enforce those rights or liabilities the Legislature has laid down the procedure which has got to be followed, and if the official liquidator was attempting to realise a contractual debt, then I fail to understand why the defendant was not entitled to plead to that suit limitation under Article 112. I am therefore unable to accept that decision as a correct decision, and I think that in view of what the Privy Council has said in Hansraj Gupta v. Official Liquidators this decision must be held to have been overruled or at least erroneous.

12. Reliance was also placed on a judgment of this Court of a Division Bench consisting of Sir Charles Sargent, Chief Justice, and Mr. Justice Fulton reported in the case of Sorabji Jamsetji v. Ishwardas Jugjiwandas. There the Court held that Section 61 of the Indian Companies Act, 1882, creates a new liability in the shareholders and that liability includes contribution, not only in respect of calls made since the winding up, but also in respect of unpaid calls made before the date of the winding up, whether barred by limitation at that date or not. With great respect, that is a perfectly correct and sound proposition of law, because even though a call might have become time-barred prior to the order of winding up, on the winding up the amount of the call would be part of the statutory liability of the contributory to the company : the contractual debt would come to an end, being already extinguished but a new statutory liability would arise under the present Section 156. Whether the calls are barred by limitation or not, under Section 156 they would stand on the same footing, because to the extent of the unpaid amount on the shares of each contributory, the contributory would be liable to contribute to the funds of the company, but this liability would be subject to, governed by and controlled by Section 187 of the Indian Companies Act. It could not be recovered by an ordinary suit filed in the ordinary manner for the recovery of a contractual liability, but the Court would have to consider whether the contributory should be called upon to make any contribution to the funds of the company or not. As I said before, that decision of the Court would be controlled by various considerations mentioned in Section 187 of the Indian Companies Act.

13. Reliance was also placed on a judgment of Mr. Justice Braund in the case of J. C. Chandiok v. Peary Lal. There the learned Judge was dealing with a petition presented by the liquidator under Section 186 of the Indian Companies Act to recover certain calls, and it was urged before him that the liquidator had no occasion to levy these sums from the contributories because he had over-estimated the liabilities of the company, and the learned Judge expressed his opinion that these arguments were irrelevant as far as the application of the liquidator was concerned, and then the learned Judge goes on to observe :-

'A call, once it has been validly made by the directors prior to liquidation and once the date for its payment has passed, becomes a debt due from the shareholder to the company and is indistinguishable from any other debt. When subsequently the company goes into liquidation, that debt, or those debts, become assets of the company which have to be realised by the liquidator. They have lost their character as calls and have become debts and, as such, are realisable by the liquidator just as any other debt or asset is realised. This Court is not in the least concerned with what he wants it for and, in my view, this Court has not even any jurisdiction to ask the liquidator what he wants it for and still less to withhold the payment of it from him. When, of course, a liquidator comes to the Court under Section 187 and asks for leave to make a call after the liquidation has intervened, the position is quite different. There the Court has jurisdiction and indeed it is the very object of its being brought to the Court at all to consider whether the liquidator really needs the money he says he needs it or not. In that case the liquidator is making a call himself and that is a step in the liquidation over which the Court has control.'

14. Now, with respect, I entirely agree with these observations of the learned Judge. The learned Judge has pointed out that there is a clear distinction between an application made under Section 186 and an application made under Section 187. An application under Section 186 is to recover a contractual debt. As the Privy Council has pointed out, it is a debt in respect of which the liquidator could have filed a suit. Instead of filing a suit he resorts to the summary procedure, and in an application under Section 186 the Court has not to consider the sufficiency of the assets or the extent to which the contributories should be called upon to contribute to the funds of the company. But when the liquidator comes under Section 187, the position is entirely different and the Court has to apply its mind to various other things. Now, Mr. Seervai emphasisases the expression used by the learned Judge that the debt changes its character. To the extent that the debt is sought to be realised under Section 186, I do not agree with the learned Judge that the debt changes its character. To the extent that an application is made under Section 187, with respect again, I agree with the learned Judge that the debt changes its character. In the first case the debt remains a contractual debt and in the second case it becomes a statutory debt.

15. Therefore, in my opinion, the suit filed by the liquidator, if looked upon as a suit to recover a contractual debt, is barred by limitation. If looked upon as a suit to realise a statutory debt created by Section 156, then the suit is not maintainable because no call in respect of that liability was made by the Court, and in the absence of any such call the statutory liability cannot be realised by the liquidator.

16. Mr. Seervai says that our decision might create serious difficulties in the way of then liquidator in realising calls made prior to the winding up. We see no difficulty whatsoever. The position in law is perfectly simple and the liquidator has his own powers whether a call is within time or is barred by limitation. If the call is within time, he might file a suit or proceed under Section 186. If the call is barred by limitation, he has to go to the Judge in Chamber under Section 187 and satisfy him that the position of the company is such that that call should be enforced by a call made by the Court in the winding up proceedings. Even in this suit, if the correct legal position had been appreciated, the liquidator could have got the Court to make the necessary order for a call under Section 187 and could have enforced the liability against the defendant in that manner.

17. The result is that the appeal will be allowed with costs and the suit dismissed with costs. There will be a decree in favour of the defendant for the sum of Rs. 450 which was allowed to him by the learned Judge when he allowed the plaintiff to amend the plaint.

18. Appeal allowed.


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